No Tax Hanky-Panky|in EU Porn Site Move

(CN) – A Hungarian company’s licensing of its erotic video chat site Livejasmin.com to a company in Portugal – where the tax rate is lower – was not illegal per se, the European Court of Justice said Thursday. In 2009, Hungary-based WebMindLicenses received the know-how to run the erotic video chat website Livejasmin from a Portuguese company, free of charge. That same day, WebMind agreed to give another Portuguese company, Lalib, the Livejasmin know-how it had just acquired. Hungarian tax authorities balked at the deal, believing WebMind intended to avoid Hungary’s value-added tax by pretending to operate in Portugal where the VAT rate is lower. Specifically, the tax officials said the transfer of WebMind’s know-how was not a genuine economic transaction and that the company was actually still running Livejasmin in Hungarian territory. Hungary ordered WebMind to pay over 21.1 billion Hungarian forints – about $72 million – in back taxes and fines. WebMind appealed to a Budapest administrative court, which asked the European Court of Justice to weigh in on whether the company’s transfer of intellectual property to Portugal was an abusive practice. The Hungarian court also asked the high court whether the EU constitution permits tax authorities to use evidence gleaned by secret means in criminal cases. On Thursday, the Luxembourg-based EU high court ruled that in order to find WebMind’s transfer – to benefit from a lower VAT rate – was an abusive practice, the Hungarian court must first determine if the Portugal-based Lalib is a real company with offices, staff and equipment or if the whole deal was a sham to dodge Hungary’s VAT. The fact that WebMind chose to license the know-how to run Livejasmin.com, whether for business reasons or otherwise, instead of exploiting the know-how itself is not enough to demonstrate a sham arrangement, the court said. As for the investigative practices of Hungary’s tax authorities, the court said in its 13-page opinion that EU law does not prohibit tax authorities from using evidence gathered in a criminal case, provided constitutional rights are observed. The seizure of private emails and authorities’ wiretapping of WebMind’s phones amounted to an interference with the constitutional principles of right to respect for private and family life and must be justified accordingly, the court said. It added that the Hungarian court must decide whether the way the evidence was obtained was justified and dismiss the case against WebMind if no justification is found.